The diverse roles of the crypto exchanges arouse conflict worries

cryptocurrency trading platforms have a little secret: they pretend to be "stock exchanges", but are usually actually brokers.

In almost every respect, these exchanges for digital assets differ radically from traditional stock exchanges, although they have names that indicate that they are replicas of the marketplaces that exist for stocks and other securities.

In reality - and in contrast to conventional stock exchanges - trading platforms for Bitcoin and other digital assets offer much more than just an electronic platform for investors for buying and selling securities. They take care of the custody, handle customer funds, act as a opponent for trade transactions and have - recently - started to award and borrow loans.

and according to Simon Forster and Duncan Trenholme, co-conductor for digital assets at the broker TP ICAP: "If you have an exchange that carries out, tie, lend and borrow.. It looks like a broker or a bank."

This multi -layered role has aroused concerns that platforms may not always serve the best interests of the customer. Instead of being a neutral party in transactions like a stock exchange, a crypto platform can act against customers, which creates a situation in which one side has to win, the other must lose-which means that private customers run the risk of being treated unfairly.

Risks like this have been identified in recent studies. In October, the National Bureau of Economic Research found that in contrast to regulated stock exchanges, cryptocurrency platforms had no precautions to ensure that investors receive the best possible price.

Anton Katz, CEO of the software company Taslos, says that this is a problem for professional investors who enter the market, since some of them have "best execution" obligations-i.e. they have to carry out transactions at the best possible price.

In the crypto sector, most exchanges not only offer matching services, but also custody, clearing and processing

As a result, you feel more comfortable to distribute transactions to different providers in order to minimize conflicts of interest and the extent of the effects when a platform breaks down or hacked.

"In the crypto area, most exchanges not only offer matching services, but also custody, clearing and processing, to name just a few," emphasizes Katz. “This means that in reality they are more like a [traditional] broker, since a customer effectively competes against the stock exchange itself, in contrast to another customer of the stock exchange.

and crypto exchanges do this with little, if at all, official supervision. Political decision-makers say that in view of the constantly increasing financial and stability risks in a market of US dollars today, this becomes a problem. Many companies concerted efforts to bring the mushroom industry under supervision.

As the largest owner of Bitcoin and other important digital assets, the stock exchanges together with the “miners” that create new currency units are among the most influential actors in the crypto world.

You keep the money of the customers and require the dealers to book money to finance the trade in advance. They regulate trades and ensure that all parties are paid. But they do this in an environment in which hacks are widespread and the transparency about the prices and what happens on the stock exchange is almost zero.

regulatory authorities have been aware of the problem for several years. Ashley Alder, Chief Executive of the Hong Kongs Securities and Futures Commission, said in a speech from 2018 that crypto exchanges as an agent for their customers and as their own interests in retail are difficult-which makes it difficult to recognize and monitor larger conflicts of interest. He added that investors are also faced with "additional weak points" because they act directly with these platforms, not about an intermediary.

"These are of particular interest to the security authorities, since these platforms superficially imitate conventional funds and stock exchanges," said Alder. He also pointed out that the custody of the funds of investors was an area of ​​"main concerns".

Last year, the Hong Kong regulatory authority decided that all of these platforms had to register with them, which caused FTX and others to look for a warmer regulatory atmosphere on the Caribbean Islands.

For the traditional stock exchanges, the enormous sums that were accumulated by crypto start-ups in a short time have made it difficult to resist digital assets as a potential market. They also hope that their background in regulated markets gives them an advantage.

$ 2 trillions

Size of the market for crypto assets

Jürg Schneider, Head of Media Relations at the Swiss Börsen operator Six, indicated this when he received the official approval for the introduction of a digital asset platform in September.

"We are a globally recognized and regulated securities exchange," he said. "All of this represents a completely different construct than the crypto trade exchanges currently on the market. From a regulatory point of view, they are not regarded as stock exchanges."

But while the regulatory authorities are exposed to fewer challenges while cryptocurrency platforms are exposed to, they have to meet other annoying interest groups: private customers.

"Reality [IS] that dissatisfied customers are only a few clicks away from transferring their assets to a competitor," Fadi Aboualfa, research manager at the London provider of digital infrastructure Copper.

Since the regulation is intensified and competition increases by established stock exchanges, the ability of the investors to move freely could be the greatest test for digital start-ups.